Can I change a grantor type trust to complex?

[Cyndi12]

Mom has an irrevocable trust. I'm the trustee. No where in the trust documentation does it state what type of trust it is (simple, complex, grantor). Last year the accountant filed the trust's first tax return and checked off Grantor and paid no taxes on the 1099-DIV the trust earned. Instead, he put the sum on mom's personal tax return. So the trust paid no taxes. This year I'm doing the filing and I think it should be Complex (no distribution, no K-1) and the trust should pay the tax on the 1099-DIV. Granted, the trust will pay a higher tax rate, but I think its a red flag if the trust files and pays nothing.

[Anonymous_]

If the trust is a grantor trust, it is disregarded for federal income tax purposes.

You could file a 1041 with a grantor information statement, but it would be improper to issue a K-1 for a grantor trust.

[Cyndi12]

But who determines if it is a grantor or not? The lawyer who prepared the trust is clueless. Nowhere in the trust does it specify. Thanks! 

[Anonymous_]

The IRS determines that and it is (for the most part) in the tax code (IRC Sections 671-678).

See https://www.irs.gov/pub/irs-tege/eotopicf01.pdf

[Cyndi12]

Someone in the law firm applied for and got a tax ID for the trust at the time mom's house was sold and proceeds went into the trust. I don't want to go back to the accountant. Nor do I want to go to someone new. Hence, why can't I file taxes for the trust as a complex one?

[Anonymous_]

The mere fact that the trust has an EIN does not transform the trust from a grantor trust into a complex trust. 

[Cyndi12]

What happens if I file as a Complex trust? It looks to me that the trust may pay a higher tax rate, otherwise I don't think it will raise a red flag. 

[Anonymous_]

Yes, most likely nothing will happen with respect to the IRS as they will be more than happy to accept the tax proceeds at a much higher rate than that for individuals.

Of course, as trustee you are fiduciary and are required to act in the beneficiary's best interest which is typically not causing the beneficiary to pay income tax at a higher rate.